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Employment Contracts – choosing the right format for your business

Different types of employment contracts serve different purposes. For employers, it is important to be aware of these differences to ensure that the contracts they have in place are reflective of their business’ needs.

In this article, we will look at:

  1. the most common types of employment contracts; and
  2. some of the risks involved in getting it wrong.

What are the most common types of employment contracts?

At its heart, an employment contract sets out the terms and conditions that will govern the employment relationship between the business and its employees. The traditional employment relationship is ever-changing in this modern landscape and, when it comes to employment contracts, it is not always one size fits all.

The most commonly-used employment contracts, include:

Permanent employment contracts

Permanent employment contracts are used to govern ongoing employment relationships (including full-time and part-time employees) and also casual employee engagements.

A permanent employment contract will not specify a cessation date (i.e. the contract’s expiry date) and will continue until it is terminated by either party.

Fixed term employment contracts

A fixed term employment contract, unlike a permanent employment contract, must specify a cessation date. Fixed term contracts are best utilised when they reflect project-based work and/or where ongoing employment may be contingent upon something occurring (e.g. the receipt of a further funding etc.)

Employers should exercise great caution where fixed term contracts are used consecutively (i.e. one right after the other) as this has the potential to place their business in a position where it must defend allegations that it is attempting to avoid its employer obligations. Examples of inappropriate use of fixed term contracts include where the employer:

  • issues consecutive fixed term contracts in an attempt to reduce or avoid redundancy pay and/or notice of termination provisions; or
  • does not renew a fixed term contract in an attempt to any avoid unfair dismissal liability.

Maximum Term contracts

A maximum term employment contract also specifies a start and cessation date, but provides the employer with greater flexibility than a fixed-term contract in that it can be terminated (with notice and for a lawful reason/s) prior to the cessation date, without necessarily triggering a situation where the balance of the contract term becomes payable to the employee.        

FREQUENTLY ASKED QUESTIONS

Why do I need a written contract, we have verbally discussed it with the employee and they understand?

Strictly speaking, and subject to some exceptions (for instance, restraint), an employment contract (of any kind) does not have to be in writing to be enforceable. However, without a written employment contract there is significant risk that a dispute will arise and, if it does, it is very difficult for an employer to defend its position without a written contract of employment to rely on. It then becomes a matter as to which evidence the Fair Work Commission and/or the Courts prefers. This is a costly and unpleasant experience for any business fraught with risk.    

What are the risks if we write our own employment contracts (without legal assistance)?

Australian Employment Law is inherently complex as it traverses statutory obligations arising under multiple pieces of legislation (both State and Federal) and common law obligations. It is also fast-moving, changing relatively regularly in different ways. Legal practitioners (in particular, Accredited Employment Specialists) are experienced in the intricacies of this area and can assist employers and businesses to ensure their employment contracts are lawful and enforceable (and provide greater protection with respect to post-employment obligations).    

Our employees are covered by a modern award, so we don’t need an employment contract, do we?

An employment contract cannot contain terms and conditions that are less favourable than the applicable modern award or the National Employment Standards in the absence of any agreement (verbal or in writing) the default position will be to refer to the terms of the modern award.

Many modern awards provide for an annualised salary where an employee is paid a pre-determined annual salary (in lieu of calculation of hours works and an hourly rate) that is also designed to compensate them for other entitlements under the applicable modern award (for example, overtime or allowances). Most modern awards require an annualised salary arrangement to be set out in writing. It is worth noting that new requirements are pending in relation to annualised salary agreements and employers are encouraged to seek legal advice to ensure their arrangements are compliant.

In addition, an employment contract can provide additional protections specific to the business’ needs that are not provided for in any modern award – this can include protecting confidential information/intellectual property/trademarks and restraining an employee, if they were to leave the business, from working with competitors and/or taking other employees with them.

TAKE HOME MESSAGE

Your business may be inadvertently implementing employment contracts that do not reflect the actual employment relationship or the needs of the business. In addition to the obvious operational issues, getting it wrong could find you in breach of the applicable modern award or National Employment Standards or the receiving end of an unfair dismissal application.

The information contained in this article is general only and is not legal advice (nor a substitute for legal advice). For advice specific to your circumstances, you should seek independent legal advice.

My Human Resources Manager recommends:

 

Michelle Dawson, Principal Lawyer & Accredited Workplace Relations Specialist at DWF (Australia) Michelle.Dawson@dwf.law | 0478 330 087

Got a question? Please call Sandra King at My Human Resources Manager on 0406 774 062 or email sandra@myhrmanager.net.au.


In this first edition of HR HOT TOPICS, we take a look at:

Unpaid workers

When is it legal not to pay someone?

Unpaid working arrangements can take on many different forms, from internships to job trial, and it is important that businesses are aware of the do’s and don’ts to avoid finding themselves in hot water!

This article will focus on a business’ obligations specific to unpaid workers and it is important to note that the term “worker” includes contractors, labour hire employees, etc. and is not confined to just employees.

When is it lawful to engage an unpaid worker?

It is unlawful to engage a worker on an unpaid basis, unless the worker is a student completing a vocational placement.

In order to be classified as a vocational placement, the Fair Work Act 2009 (Cth) (Act) requires that:

  1. the work placement must be undertaken as a requirement of an educational or training course (being a compulsory part of the course as a whole or of an individual subject or module of the course); and
  2. the placement must be authorised under the applicable federal or state/territory law. Generally, formal work experience arrangement which forms part of an education or training course being undertaken by a registered training organization will satisfy this requirement.

If the placement meets the above criteria no employment relationship arises and the unpaid worker is not entitled to the benefits arising from the Act.

When does an employment relationship arise?

The key distinction between paid and unpaid works, aside from the obvious financial difference, is that a relationship arises between the business and the unpaid worker of that of an employer and employee.

Unlike employees, unpaid workers are generally under no obligation (or expectation) to attend the workplace to perform work. However this isn’t the only definitive factor and other factors that are considered, include (but are not limited to):

  • the nature & purpose of the arrangement;
  • the length of the arrangement;
  • whether the work undertaken would usually be performed by an employee; and
  • who benefits from the arrangement – the Fair Work Commission has made it clear that profiting from volunteers is not acceptable.

It is important to note, the more formalised the unpaid work arrangements become, the more likely the arrangement would be considered an employment relationship.

It is when an employment relationship inadvertently arises that employers will find themselves in hot water; because an employment relationship comes with all the usual employer obligations such as minimum pay requirements, leave entitlements, etc.

Frequently Asked Questions

What is a reasonable length of time for an unpaid trial?

The quick answer: none!

It is unlawful for an employer to allow an intern or trial candidate to work for free unless a formal work placement arrangement is in place (as outlined above)If people are performing productive work for a company, they are legally entitled to be paid minimum award rates.

What if the worker is happy with an unlawful working arrangement?

Regardless of the workers willingness to agree, any verbal or written agreement between the business and the unpaid worker will be invalid and, to the extent that it was written, not worth the paper it is written on

TAKE HOME MESSAGE

If an employer, whether knowingly or unknowingly, fails to comply with their legal obligations, they open themselves up to significant risk and liability.

The costs of getting it wrong can be substantial, not only for your business but to you personally. As one employer recently found out after it was found to have engaged unpaid interns in contravention of the Act. The business was fined almost $275,000 and the director was personally fined over $50,000.

The information contained in this article is general only and is not legal advice (nor a substitute for legal advice). For advice specific to your circumstances, you should seek independent legal advice.

My Human Resources Manager recommends:

 

Michelle Dawson, Principal Lawyer & Accredited Workplace Relations Specialist at DWF (Australia) Michelle.Dawson@dwf.law | 0478 330 087

Got a question? Please call Sandra King at My Human Resources Manager on 0406 774 062 or email sandra@myhrmanager.net.au.

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